Canadian investors urged to bet on Philippines

Economist says B.C. businesses should look past political controversies in Manila

Canadian and B.C. businesses looking for the next emerging foreign market – especially in construction and infrastructure-related sectors – should look past the political controversies in the Philippines and invest there, a top-level Filipino economist said at a Vancouver appearance this month.

But the suggestion by noted Filipino economist Bernardo Villegas that the Philippines is ready to shed its image as “the sick man of Asia” and become a valuable investment target for B.C. businesses did not find agreement throughout the local community of Filipino-Canadians, as some feel the risk of doing business there remains high.

Villegas, research director of Manila-based think tank Center for Research and Communication, spoke in Vancouver on October 5 on the invitation of the Philippines Canada Trade Council. The Harvard University-educated scholar, in his role as a promoter of international business links for the Philippines, said the country’s recently launched, US$180 billion “Build Build Build” (BBB) infrastructure construction initiative is an opportunity that B.C. should not miss.

“If the BBB program we now have in place really gets traction, we can grow our economy at 8% to 10% a year, as China was able to do at the beginning of their reforms in 1978 under Deng Xiaoping,” Villegas said, noting the initiative is calling for 75 major projects, including multiple airports, seaports, highways, rail lines and energy facilities.

Villegas added that recent policy reforms, along with the country’s young, cheap and English-speaking skilled labour force, have driven this year’s gross domestic product growth to an estimated 6.7%, a figure that the Philippines is projected to hold next year as well, according to the World Bank. As the growing middle class starts to take advantage of better transportation infrastructure, opportunities in fields like domestic tourism are also likely to rise as well, Villegas said.

“When BRICS [Brazil, Russia, India, China and South Africa economic partnership] was looking for a fifth member a few years ago, it should have chosen Southeast Asia,” he said. “The Chinese are now realizing that they have to be very close to ASEAN [the Association of Southeast Asian Nations]. That’s definitely my advice to Vancouver and to Canada – be the first to exploit from outside ASEAN our investment opportunities, especially in the VIP economies of Vietnam, Indonesia and the Philippines.”

Villegas’ interpretation of the situation in the Philippines, however, was not without opposition. Many observers remain concerned about the country’s direction under President Rodrigo Duterte, under whom the BBB initiative was launched. Duterte’s controversial “war on drugs” has been criticized by many for triggering thousands of extrajudicial killings.

In addition, Duterte – dubbed by some as “the Donald Trump of Asia” – has been verbally confrontational with western leaders, including a spat with Prime Minister Justin Trudeau after Canadian concerns over human rights helped scuttle a planned helicopter deal in February.

On top of that, there are economic concerns, both general and specific to foreign investors. Inflation rates reached 6.4% in August – the highest among ASEAN nations and the highest in the Philippines in almost a decade – while the Philippine constitution continues to restrict or cap the amount of foreign investment allowed in many sectors. Spanish banking giant Santander Group, in its profile of the Philippines, noted that the World Bank ranked the country 113th out of 190 economies this year as a destination for doing business.

“Despite constantly increasing FDI [foreign direct investment] inflow levels, the Philippines continue to lag behind regional peers, in part because the Philippines’ constitution limits foreign investment and also due to the threat of terrorism in some parts of the country,” the Santander profile said. “Factors such as corruption, instability, and inadequate infrastructure, high power costs, lack of juridical security, tax regulations and foreign ownership restrictions discourage investment.”

Ted Alcuitas, publisher of Vancouver Filipino online publication Philippine Canadian News (and former senior editor of Philippine Asian News Today), said corruption is “endemic” in Filipino business culture and remains the biggest hurdle for any B.C. businesses hoping to enter the Philippines.

“It’s the most damaging element that the country has,” said Alcuitas, who was in the construction industry before moving to Canada and making the switch to journalism. “You better be sure you know what type of companies and with whom you are doing business in the Philippines. What government institution are you dealing with? Can you trust them? That’s the most important question.”

Alcuitas noted that Duterte recently hinted that he might be seriously ill, which touched off a wrestling match at the top of Manila’s political scene over who would succeed the president if he is unable to govern.

“It’s a volatile situation,” Alcuitas said. “If you are a business, why would you invest now? Wouldn’t you wait until things are settled? Businesses want stability…. Yes, a lot of benefits do exist, but it depends on the kind of government you have. The facts are indisputable: We have a young labour force. But who is leading?”

Villegas conceded that a lot of the overseas opinion about the Philippines is negative, but he maintained that the country is a rising economy that should not be overlooked – provided an investor is patient and has a longer perspective.

“Policy issues contributed to 80% of the Philippines’ economic stagnation in the past,” he said. “The last 20% is corruption; but without in any way condoning corruption, that doesn’t explain our economic backwardness. Otherwise, how would South Korea be a First World economy today? What about Malaysia? So corruption is a problem, but we are against it for moral reasons and not necessarily for economic reasons.”

“The next two presidents, whoever they are, will have to continue the BBB program, because the country is so far behind in infrastructure,” Villegas added. “Anyone who has travelled to Taiwan and South Korea will see that we are light years behind our neighbours in infrastructure. Even Vietnam is doing better. So any industry that has to do with infrastructure will have the next 20 years to enjoy the Philippines and its high rate of return. It’s in the long term.”

B.C. officials have long identified Southeast Asia as a key area of trade development. B.C. runs three trade offices in the region, including one in Manila.